Prices of a key Australian thermal coal grade went on a rollercoaster ride in 2018 following unexpected friction during yearly contract talks with a major export market, Japan.

This hiccup in trade was shortlived and gave way to sustained high prices that could continue to shore up the sector. Following a period of cost-cutting and readjustment to new market realities over the last few years, the Australian coal sector now looks in better shape, while new coal-fired power plant builds across Asia should provide reliable demand for the fuel.

Despite a record rate of US coal-fired power plant closures in 2018, domestic coal prices are unlikely to come under significant pressure, according to S&P Global Platts Analytics, partly because exports are currently providing an outlet for excess supply.

A lack of downside pressure will be welcomed by producers. Despite promises by US President Donald Trump to put coal miners back to work and his efforts to repeal Obama-era legislation seen as hostile to the industry, use of the fuel has continued to decline in the power sector.

After being at a six-year high in July, the spread between Central Appalachia (CAPP) thermal coal and thermal coal delivered into Northern Europe fell to its lowest level in nearly four years Wednesday.

CIF ARA 6,000 kcal/kg coal, for delivery in the next 15 to 60 days to Amsterdam, Rotterdam or Antwerp, was assessed Wednesday by S&P Global Platts at a six-month low of $85.95/mt, while rail-delivered (CSX) CAPP coal for December delivery was assessed at $77.75/st.

The growth of low-priced natural gas supply from Appalachia and Texas appears to be changing the market calculus on winter heating demand this year.

With pre-winter gas inventories sitting at their lowest levels in over a decade, prices remain near historic lows. In the coal market, inventories are also at their lowest level in more than a decade, but prices have shown little reaction.

In Asia Pacific thermal coal circles it is known as the “great decoupling” and refers to the yawning gap between spot traded prices for Newcastle 6,000 NAR thermal coal and another grade of Newcastle thermal coal, 5,500 kcal/kg NAR.

That gap has blown out to an unprecedented $50/mt, from only $10/mt in early February, and the phenomenon has not gone unnoticed in wider business circles.